Senators Try to Block Merger (Updated)

PepsiCo mulls acquisitions, AT&T to spin off Liberty and more.

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Not in my backyard.

That is what at least four senators are saying about the proposed $2.7 billion merger of meat- packing giants Smithfield Foods Inc. and IBP Inc.

On Wednesday, Democratic Sen. Byron Dorgan of North Dakota asked the Justice Department to block the deal. He is the fourth farm state senator to vocally oppose the merger, arguing that it would cut competition and hurt family farmers who sell hogs for slaughter.

The other complaining senators are Democrats Tom Harkin of Iowa, Tim Johnson of South Dakota, and Paul Wellstone of Minnesota, who have asked antitrust regulators to closely scrutinize the deal.

Senator Charles Grassley, a Republican from Iowa, has also registered his concerns.

The proposed merger would produce “a level of corporate concentration that is unhealthy for our country,” wire services quote Dorgan saying in a letter to Attorney General Janet Reno. “I urge you to stop this concentration by denying Smithfield Foods’ proposal to take over IBP.”

Smithfield is the nation’s biggest pork producer and IBP ranks second. The combined company would control 38 percent of the U.S. pork market and 30 percent of the U.S. beef market, Dorgan is quoted as saying.

Smithfield was criticized by lawmakers and farm groups for its previous acquisitions of Murphy Family Farms and Carroll Foods.

Outsourcing Increases Productivity

Outsourcing accounting and finance functions and projects lifts productivity for most firms, according to a survey by Accounting Principals, a firm that specializes in the recruitment and placement of accounting and finance professionals.

The survey of 200 firms found: 5 percent said productivity jumped more than 26 percent; 2 percent saw an increase of 21 to 25 percent; 8 percent said productivity rose 16 to 20 percent; 22 percent saw an increase of 11 to 15 percent; 37 percent have seen productivity gains of more than 10 percent; 34 percent reported gains of 6 to 10 percent; and 29 percent saw gains of up to 5 percent.

The most frequently outsourced functions: Payroll processing, 47 percent; tax preparation, 39 percent; auditing, 37 percent; tax analysis, 20 percent, and accounts payable, 18 percent.

The top reasons firms outsource finance and accounting functions are: To reduce operating costs (38 percent), to retain outside expertise (28 percent); the functions aren’t the firm’s core competency (27 percent); difficulty recruiting or retaining finance staff (19 percent); to generate or improve management efficiencies (18 percent).

Goldman Sachs Takes Merger-Related Writeoff

Goldman Sachs Group will take a $290 million charge in its fiscal fourth quarter stemming from its recent purchase of Spear Leeds &Kellogg, according to an SEC filing.

Back when the deal was announced, Goldman Chief Executive Henry Paulson Jr. predicted that the charge would amount to between $350 million and $400 million. Why the lower figure then?

It’s because Goldman’s stock price fell between the time the deal was announced in September and the time it closed. As a result, when the deal was announced the price tag amounted to $6.5 billion in cash and stock, but when it closed the price tag wound up at $5.9 billion.

The charge stems from a $702 million retention pool in restricted stock units for employees of Spear Leeds. The $290 million charge is for Spear Leeds employees who don’t have to remain with Goldman to get the restricted units.

Other charges will be amortized over five years for employees who must stay with Goldman to get the units.

PepsiCo CFO Lays Out Acquisition Plans

PepsiCo Inc. Chief Financial Officer Indra Nooyi hinted that the soft drink and snack company might seek acquisitions, but not at the moment.

“We’ve got all the scale we need,” she is quoted in wire service stories from a UBS Warburg conference that was broadcast on the Internet.

Among the requirements for an acquisition, a company must fill a gap in the PepsiCo portfolio, according to the CFO. Nooyi also said PepsiCo’s share repurchase program should be completed a year ahead of schedule.

AT&T to Give Liberty its Liberty

AT&T Corp. is planning to spin off the Liberty Media Group television programming unit, which it acquired through its acquisition of Tele- Communications Inc.

The transaction should ease regulatory concerns over its cable television holdings.

Remember, Liberty, which has been trading as a tracking stock, would be converted to an asset- based security that is independent and publicly traded. The spin off should be completed in the second quarter of 2001.

AT&T would simply swap new shares of Liberty for the tracking stock. The transaction is also subject to AT&T receiving a favorable tax ruling.

However, this is no easy feat. AT&T acquired Liberty as part of last year’s tax-free acquisition of Tele-Communications Inc. So, it must pay some taxes on the deal if it sells Liberty before the spring of 2001.

However, AT&T could avoid the tax if it could convince the IRS that it had a material business reason for the sale.

Foreign Direct Investment Soars in Japan

Foreign direct investment (FDI) in Japan set a record for the six-month period ending in September.

And due to the twin forces of deregulation and corporate restructuring, FDI figures to continue to grow in the future, according to the Finance Ministry.

The most popular industries to receive investments were the financial and telecommunications sectors.

One significant telecommunications deal: Japan Telecom Co Ltd’s purchase of a 54 percent stake in J-Phone Communications. Japan Telecom is owned 15 percent each by British Telecommunications Plc and AT&T Corp.

Investment by Japanese subsidiaries of foreign companies also set a record in the six- month period.

The non-manufacturing sector, led by banking/insurance and telecommunications, FDI nearly doubled.

“In the banking and insurance industries, foreigners found investment opportunities because many institutions collapsed and were put up for sale,” said Masayuki Kichikawa, senior economist at Asahi Life Asset Management in a Reuters account.

Japanese direct investment overseas, on the other hand, fell by about 50%.

In the United States and Canada, it plunged by more than 57 percent. In Europe it fell by more than 44 percent while in Asia it fell by 39 percent.

Earnings

  • Applied Materials reported fourth-quarter net income of $664 million, or $0.77 a share, compared with $303 million, or $0.37 a share, during the same quarter last year, beating the consensus forecast by a penny per share. However, it also warned that uncertainty in world markets was clouding future performance. This morning, Merrill Lynch cut its 2001 earnings estimate to $2.95 a share from $3.50.
  • Nordstrom posted a third-quarter profit of $0.18 a share, down 36 percent from a year- ago and a penny shy of the consensus estimate.
  • Mary Meeker of Morgan Stanley Dean Witter told a venture capital conference on Wednesday that she expects Amazon.com Inc. to post a strong fourth quarter.
  • Sunglass Hut said its quarterly loss widened from a year ago, but it met consensus expectations.
  • The Limited reported fiscal third-quarter earnings per share of $0.11, in line with expectations, compared with $0.09 in the year- earlier period.

Dot-com Death Watch

  • BeautyJungle.com, an online cosmetics company, closed down Wednesday, citing inadequate financing to help the company turn a profit. It will lay off 30 people in Chicago, New York and Indianapolis, but keep a small staff to handle the liquidation of assets.

From the CFO.com “Brief” Case

  • The Consumer Price Index (CPI) rose by 0.2 percent in October, in line with expectations, after a 0.5 percent gain in September. Core CPI, which excludes volatile food and energy prices, also rose by an expected 0.2 percent following a 0.3 percent increase in September.
  • the New York Stock Exchange said it plans to list all stocks in dollars and cents, rather than fractions, starting Jan. 29, two months ahead of the government deadline.
  • IBM and Japanese electronics company Sharp said that they plan to form a company specializing in the development of ERP (enterprise resource planning) and SCM (supply- chain management) solutions.
  • Intel Corp. will finally trot out its long-anticipated Pentium 4 chip on Monday. It will be the fastest PC processor, clocking in with speeds of 1.4-GHz and 1.5-GHz. The company said it will hit speeds of up to 2 GHz by the third quarter of 2001.

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